“We cannot repeat the mistakes of the financial crisis”

According to information from EU circles, it will be even more formidable than the Franco-German proposal: the governments in Paris and Berlin this week called for a debt-financed EU fund with a volume of EUR 500 billion to cushion the economic consequences of the pandemic in the EU .

The Federal Government believes that the aid from the fund should be conditional. Beneficiary countries such as Italy should only receive support if they finally tackle long-delayed reforms. The Italian Gentiloni sees it more relaxed. “I wouldn’t call it conditions or conditionality,” he said in an interview with the Handelsblatt.

However, Gentiloni also hopes that the EU’s Corona Reconstruction Fund will bring a push to reform in southern Europe. The EU Economic Commissioner also sees a need for action in Germany. The enormous aid program for the German economy is to be welcomed, but must not remain a flash in the pan, says the EU Commissioner. Germany would have to keep public investment at a high level for years to come.

You can read the entire interview here:

Commissioner, Germany and France have proposed a € 500 trillion EU reconstruction plan. Will that be enough to deal with the economic consequences of the corona crisis?
The EU Commission will present its draft for a reconstruction plan next week. It will not look exactly like the Franco-German proposal. I do not want to comment on the numbers so shortly before the publication, but you know my position.

You advocated an EU rescue package worth billions at an early stage. Are you generally satisfied with the Franco-German initiative?
It is certainly very helpful that Germany and France have agreed on a common position. Both countries have recognized that we are in an exceptional situation that requires an extraordinary response. In doing so, they are paving the way for the EU government to adopt the reconstruction plan.

An EU summit is planned for this on June 18. Do you expect an agreement?
Until then, some differences of opinion have to be overcome. But I assume that in the end reason and responsibility will prevail.

In the end, reason and responsibility prevail. Paolo Gentiloni

EU countries particularly affected by the crisis should receive transfers from the EU reconstruction fund – but only under certain conditions. Which are they?
I would not call it conditions or conditionality. A key task of our recovery plan is to help the regions and economic sectors most affected by the pandemic. We also want to use it to achieve our strategic goals. This is about correcting our economic model: it has to become more environmentally sustainable, more social and more digital. These economic policy priorities play a very large role in the reconstruction plan. We also want to let all Member States share in the prosperity. We had the Great Depression ninety years ago, a great recession ten years ago, and now we face great fragmentation in poor and rich EU countries. We have to prevent that.

However, some EU countries, such as Italy, urgently need structural reforms, for example on the labor market, in state administration or in social systems. Will the EU finally start these reforms?
First of all, we have to help and show solidarity. The reconstruction plan also gives us a financial instrument to support such reforms in the next two to three years. Indeed, we should take this opportunity to implement the reforms that have been long overdue in several countries.

Germany has launched a huge national economic aid program. Is that enough to eliminate the investment weakness that the EU Commission has complained about for years?
What the Federal Government has presented is impressive and is very much appreciated. Even with such an extraordinary investment program, it is not enough if it remains unique. The level of government investment in public infrastructure, digital and green change must remain high in the following years. Unfortunately, a significant decline in private investment can be expected in the next few years. Several large potential investors have liquidity problems. The feared investment gap will run into trillions if high-performing countries like Germany do not counteract this with public investment.

Germany is also the frontrunner in state aid to businesses. The EU Commission sees this rather critically – why?
We have no reason to criticize that at all. The Commission has significantly relaxed state aid rules because of the corona crisis. It is perfectly acceptable for states with the appropriate financial scope to use this. However, the Commission must ensure that the aid does not distort competition in the internal market.

press conference

Paolo Gentiloni in Brussels – Works in Corona characters.

(Photo: Reuters)

Since the pandemic broke out, the Commission has approved subsidies of over EUR 1.9 trillion, of which 51 percent is in Germany, followed by France with 17 percent. Is this still fair competition?
Indeed, there are very large differences between Germany on the one hand and France, Spain and Italy on the other – and that is something we are very concerned about in the Commission. We are therefore considering adding a new instrument to our reconstruction plan: Solvency support for companies that do not receive support in their home country. This is important for the pan-European value chains, for example in the automotive industry. If one link fails, all others are affected. We are also thinking about changes in our competition law. When we have the crisis behind us, we have to come back to stable competition rules.

According to which criteria should all the money from the EU reconstruction fund be distributed?
The EU heads of government have already stated that the regions and sectors most affected by the pandemic should be supported. But putting this into practice is not that easy. We need formal criteria for this, and the Commission services are working on that now.

If the EU pumps hundreds of billions of euros into the economy and owes it, the money will have to be paid back at some point. Will things then go back to the way they did after the financial crisis: tax increases and tough austerity programs?
My answer to that is a resounding no. We should not use the logic and wording of the financial crisis.

The currently suspended Stability Pact with its ceilings for debt and deficits will have to be applied again at some point. When will that be?
We suspended the Stability Pact because Europe is in a severe downturn. When this downturn ends, the rules of the pact must apply again.

It won’t be enough if only two or three countries are doing well again. Paolo Gentiloni

So next year, because according to their new economic forecast, the economy should grow again everywhere.
It won’t be enough if only two or three countries are doing well again. Conversely, a suspension of the Stability Pact is no longer justified if one, two or three countries are still in recession. If the economy in a majority of EU countries grows again, then we should put the pact back into force. If our forecast comes true, then next year will be the case. I hope so, of course.

Is there a risk of austerity?
This is not even an option now. We have to live with the pandemic for weeks, maybe months. At the same time, important sectors, such as tourism, have to get going again. This summer will be very different from what we are used to. Distance rules in restaurants and on beaches must be observed. National or local authorities have to take care of this. In addition, the border openings must be organized and coordinated. The EU Commission monitors this. This is particularly important in the southern European countries, where tourism makes a substantial contribution to the annual economic output.

At some point the state budget has to be consolidated – right?
Yes, but we cannot repeat past mistakes. In the financial crisis, budget consolidation often went at the expense of investment. That must not happen to us again.

Finally, a question about the ECB judgment: The Federal Constitutional Court clearly opposed the European Court of Justice – a clash between the highest German and the highest EU court. What must the federal government do to resolve this conflict?
From the Commission’s perspective, two points are crucial. First, the independence of the European Central Bank must not be touched. Second, when it comes to European affairs, ECJ decisions always take precedence over decisions of national courts. It is of strategic importance for the EU that ECJ judgments are recognized. We saw this, for example, in the dispute over the rule of law in Poland or in the Brexit debate. This should be respected by an EU founding member as important as Germany.

Mr. Gentiloni, thank you for the interview.

The interview was conducted with four other European newspapers.

More: How the EU Commission is going to fuel the economy and stick to the Green Deal

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